|Another chance at UTI|
|Monday, 30 July 2012 00:00|
Chance for govt to fix its anti-industry image
With UTI’s board, and shareholders, meeting over the weekend to finalise the chief for India’s 5th-largest mutual fund after 16 months of it being headless, there’s hope for millions of Indians who continue to invest in UTI’s mutual funds. The process of selecting UTI’s chief after UK Sinha left the job to become Sebi chief, FE was the first to report in April last year, got stuck because the finance ministry was pushing for its own candidate, one who was not on the short-list of Egon Zehnder, the consultants hired by UTI to do the initial global search. When the mutual fund’s HR sub-committee – which was tasked to give its choice of the top 3 candidates from this to UTI’s board – met the finance ministry’s candidate, it too remained unimpressed with his credentials to manage the fund. In the interim, with the fund’s operations suffering – at one point, Sebi even banned it from offering new schemes since it didn’t have a chief – it was proposed the job be split into two, to accommodate the finance ministry candidate while getting a professional CEO to look after the day-to-day operations. This didn’t work out either with the CEO-candidate pulling out before a formal offer was made, once the press put out the name – the dangers of an over-active media! Hopefully, with the process starting all over again, UTI will finally get a full-fledged chairman, though it is not clear whether those chosen by UTI’s HR sub-committee remain in the fray after all this time.
Assuming the new chief gets selected over the weekend, the task ahead will be to make UTI Sebi-compliant. Under the rules, each AMC needs a ‘sponsor’ and, among other things, the sponsor has to hold a minimum of 40% of the AMC’s equity. If T Rowe Price, the largest shareholder, is to raise its share from 26% to 40%, this means the PSU shareholders, each of whom own 18.5%, will have to dilute their shareholdings. The other issue that needs tackling is to get SBI and other PSUs to exit UTI over a period of time since, under Sebi rules, no one can sponsor more than one asset management company – each of the four PSU shareholders in UTI have their own AMC. UTI was given a special dispensation which allowed it not to comply with these rules, but it’s already been 10 years since this happened and it needs to be on a par with other AMCs. More than UTI’s investors, perhaps the biggest beneficiary of the re-started process to find a new chief for UTI is going to be the Government of India. While T Rowe Price was brought in as part of the cure for UTI, over the last 16 months, it became a shining example of the government playing the heavy and refusing to let private investors even run their own businesses. There are many more such examples, but making the right moves on UTI will be a good start.